Socio-Economics History Blog

Socio-Economics History Blog

The Fuse on the Global Debt Bomb Has Been Lit

by mosesman

dynamite-fuse-burning

Boom-Goes-The-Dynamite-Explosion

  • The Fuse on the Global Debt Bomb Has Been Lit
    by Phoenix Capital Research, www.zerohedge.com  
    The global bond bubble has begun bursting. This process will not be fast by any means.
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    Central Banks and the political elite will fight tooth and nail to maintain the status quo, even if this means breaking the law (freezing bank accounts or funds to stop withdrawals) or closing down the markets (the Dow was closed for four and a half months during World War 1).
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    There will be Crashes and sharp drops in asset prices (20%-30%) here and there. However, history has shown us that when a financial system goes down, the overall process takes take several years, if not longer.
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    By way of example let us consider the details surrounding the Tech Bubble: the single largest stock market bubble of the last 100 years. In this case, the Bubble pertained to just one asset class (stocks).  In fact, the bubble was relatively isolated to one specific sector, Tech Stocks.
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    And to top if off, it was absolutely obvious to anyone that it was a Bubble: note that the Cyclical Adjusted Price to Earnings or CAPE ratio for the Tech Bubble dwarfed all other bubbles dating back to 1890.
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    Stocks were so obviously overvalued that it was truly absurd. And yet, despite the fact that this bubble was absolutely obvious and involved only one asset class, it still took investors well over six months after the initial 20% crash to realize that the top was in and the bubble had burst.
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    Let that sink in for a moment. Stocks were clearly in a bubble. Indeed, it was literally THE stock bubble of the last 100 years. And yet, when it burst, there was no clear consensus as to where the market was heading.
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    My point with all of this is that even when the bubble was both very specific AND obvious, the collapse was neither quick nor clean. There were several large 20%+ crashes, but overall, it was a roller coaster with jarring rallies than gradually wore its way down.
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    And when you extend the collapse from peak to bottom, the whole collapse took nearly three years. 
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    To return to my initial point: the coming collapse in the financial markets will take its time. This is particularly true this time around because the bubble pertains to bonds: the senior-most asset class in the financial system.
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    read more.

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